CHINA CAR SALES : Government Incentives Prompts Record High Sales for China's Passenger Vehicles in November

Oxford GB January 6, 2016; LMC reported that in November 2015, China’s Light Vehicle market performed at a level that exceeded our previous expectations, with sales of locally‐made models totaling 2.43 mn units, marking an impressive 21.5% rise on last year. The Passenger Vehicle SAAR climbed to 25.49 mn units during the month, registering the highest level seen in the last 23 months since January 2014.

The bulk of the contribution came from the Passenger Vehicle market, with sales of locally‐made models in November reaching a 23‐month peak at 2.11 mn units, up by 24.8% YoY. Indeed, this rise is 7.1% higher than the December 2014 result. Light Commercial Vehicles also performed well, with sales during the month climbing to just over 319,000 units, up by 3.1% YoY.

As a consequence of this boost in sales, Passenger Vehicle production followed suit, posting a similarly high result of 2.14 mn units in November, up by 22.9% YoY. However, Light Commercial

Vehicle production was weak, dropping by 2.5% YoY.

According to the China Passenger Car Association (CPCA), the Inventory Alert Index rose by 7.7% in November compared to October. It is standard practice in China for vehicle manufacturers to increase production volumes at the end of the calendar year, which inevitably results in high inventory levels for dealers. Stocks are built up in preparation for the spike in demand during the Spring Festival, thereby offsetting any risk to dealers from the current high stock levels.

November’s results are a further reflection of the success of the government’s incentives. Based on the latest CPCA data, sales of vehicles fitted with engines of 1.6 liters or less reached 1.56 mn units, a rise of 16.5% on the preceding month and equivalent to a 70.9% share of total Passenger Vehicle sales. Looking further ahead, sales of vehicles equipped with such engines will continue to perform well in the coming months, until the policy expires.

The SUV segment’s momentum continued unabated during November, with 714,000 units sold, marking a considerable 49.8% YoY rise, while, in contrast, sales of sedans/hatchbacks reached 1.18 mn units, a mere 100,000 units more than during the same period last year.

Sales of Chinese‐branded SUVs accounted for over 54% of total SUV sales in November, with YoY growth in excess of 80%. In fact, this vehicle type has become the main growth driver for China’s carmakers. Local brands have been supported largely by new model activity, with the majority of new models being well received in the market. The Haval H6, the Baojun 560, and the Trumpchi GS4 ranked as China’s top three bestselling SUV models during the month under review. Taking these various factors into account, we have made upward revisions to the short‐term Passenger Vehicle forecast by adding 380,000 units to 2015 and 550,000 units to the outlook for 2016. Although the temporary tax cut is due to expire at the end of 2016, we opted to raise the outlook for 2017 slightly, too, so that the rate of sales growth remains at a reasonable level.

Our long‐term projection is essentially unchanged, while our prognosis for 2018‐2019 has been tweaked downward slightly to reflect the anticipated slowdown in GDP growth in China. (Please note a change to LMC Automotive’s classification structure. In line with the CAAM classification, the Wuling Hongguang and the Changan Honor are now defined as MPVs (PVs); Mini Buses remain in the LCV category.)

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It offers forecasting services covering global sales and production for light vehicles and heavy trucks, as well as forecasts of engine and transmission supply and demand. In addition, LMC Automotive publishes special studies on subjects of topical interest to the automotive industry. LMC Automotive is part of the LMC group. LMC is the global leader in economic and business consultancy for the agribusiness sector